Fantasy Economics from Fauxed Foxes Ferreted OUT (Don't Miss the Comments!)

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May 5, 2013

The Chutzpah Caucus

By Paul Krugman

At this point the economic case for austerity — for slashing government spending even in the face of a weak economy — has collapsed. Claims that spending cuts would actually boost employment by promoting confidence have fallen apart. Claims that there is some kind of red line of debt that countries dare not cross have turned out to rest on fuzzy and to some extent just plain erroneous math. Predictions of fiscal crisis keep not coming true; predictions of disaster from harsh austerity policies have proved all too accurate. 

Yet calls for a reversal of the destructive turn toward austerity are still having a hard time getting through. Partly that reflects vested interests, for austerity policies serve the interests of wealthy creditors; partly it reflects the unwillingness of influential people to admit being wrong. But there is, I believe, a further obstacle to change: widespread, deep-seated cynicism about the ability of democratic governments, once engaged in stimulus, to change course in the future. 

So now seems like a good time to point out that this cynicism, which sounds realistic and worldly-wise, is actually sheer fantasy. Ending stimulus has never been a problem — in fact, the historical record shows that it almost always ends too soon. And in America, at least, we have a pretty good record for behaving in a fiscally responsible fashion, with one exception — namely, the fiscal irresponsibility that prevails when, and only when, hard-line conservatives are in power.

Let’s start with the common claim that stimulus programs never go away.

In the United States, government spending programs designed to boost the economy are in fact rare — F.D.R.’s New Deal and President Obama’s much smaller Recovery Act are the only big examples. And neither program became permanent — in fact, both were scaled back much too soon. F.D.R. cut back sharply in 1937, plunging America back into recession; the Recovery Act had its peak effect in 2010, and has since faded away, a fade that has been a major reason for our slow recovery.

What about programs designed to aid those hurt by a depressed economy? Don’t they become permanent fixtures? Again, no. Unemployment benefits have fluctuated up and down with the business cycle, and as a percentage of G.D.P. they are barely half what they were at their recent peak. Food stamp usage is still rising, thanks to a still-terrible labor market, but historical experience suggests that it too will fall sharply if and when the economy really recovers.

Incidentally, foreign experience follows the same pattern. You often hear Japan described as a country that has pursued never-ending fiscal stimulus. In reality, it has engaged in stop-go policies, increasing spending when the economy is weak, then pulling back at the first sign of recovery (and thereby pushing itself back into recession).

So the whole notion of perma-stimulus is fantasy posing as hardheaded realism. Still, even if you don’t believe that stimulus is forever, Keynesian economics says not just that you should run deficits in bad times, but that you should pay down debt in good times. And it’s silly to imagine that this will happen, right?

Wrong. The key measure you want to look at is the ratio of debt to G.D.P., which measures the government’s fiscal position better than a simple dollar number. And if you look at United States history since World War II, you find that of the 10 presidents who preceded Barack Obama, seven left office with a debt ratio lower than when they came in. Who were the three exceptions? Ronald Reagan and the two George Bushes. So debt increases that didn’t arise either from war or from extraordinary financial crisis are entirely associated with hard-line conservative governments.

And there’s a reason for that association: U.S. conservatives have long followed a strategy of “starving the beast,” slashing taxes so as to deprive the government of the revenue it needs to pay for popular programs.

The funny thing is that right now these same hard-line conservatives declare that we must not run deficits in times of economic crisis. Why? Because, they say, politicians won’t do the right thing and pay down the debt in good times. And who are these irresponsible politicians they’re talking about? Why, themselves.

To me, it sounds like a fiscal version of the classic definition of chutzpah — namely, killing your parents, then demanding sympathy because you’re an orphan. Here we have conservatives telling us that we must tighten our belts despite mass unemployment, because otherwise future conservatives will keep running deficits once times improve.

Put this way, of course, it sounds silly. But it isn’t; it’s tragic. The disastrous turn toward austerity has destroyed millions of jobs and ruined many lives. And it’s time for a U-turn. 

NYT READER-SELECTED COMMENTS:

• Karen Garcia
• New Paltz, NY

More than tragic, more than silly: the deliberate ignorance of our leaders borders upon the criminal.

Unfortunately, the only court for gross dereliction of political duty is the voting booth. And since an oligarchy has pretty much replaced representative democracy, those periodic pullings of the lever are mere exercises in feel-good futility for the masses, a great big group yanking of the national chain. Gerrymandering and the declaration that money is speech are the toxins that are killing us.

Politicians spend a lot of time complaining about the Sequester, but it's been awhile since I've heard any of them suggest that we just repeal the stupid thing. This is despite the fact that it's forecast to eventually destroy 750,000 jobs. But rest assured -- both parties will stealthily conspire to restore the Pentagon cuts, forgetting all about the Medicare patients locked out of chemo, the little kids kicked out of Head Start and the longterm unemployed facing catastrophic cuts in benefits.

These sadistic policies are actually increasing the deficit. Trillions of dollars in lost output. No jobs = no spending = no jobs in an endless, obsessive-compulsive and very vicious cycle.

It's all being sucked up, going straight to those at the very top. It's only a matter of time before the whole edifice comes crashing down, like one great, big, shoddily constructed Bangladeshi slave factory built upon a fetid swamp.

And they'll all howl: "But nobody could ever have foreseen...."May 5, 2013

• Socrates
• Downtown Verona NJ

It's not a chutzpah caucus....it's a misanthropic ideological orgy of 1% greed.

The GOP has always believed in federal stimulus....of the rich.

The GOP and the worn-down left have stimulated the rich, the corporate, the hedge-funded, and the dividends/capital gains crowd for 33 years; as a result, the 1% orbits the masses from a different monetary galaxy.

Record income inequality doesn't just happen; it's the carefully orchestrated by-product of cash-and-carry campaign bribery laws, purchased public policy, purchased media and 'research' and a stacking of the the Supreme Court to decide matters on the basis of wealth and corporatism instead of on the basis of the common good and democracy.

The problem remains Pete Peterson and his aversion to paying his fair share of taxes, something he never did as the head of Lehman Brothers and Blackstone since all his billions always qualified for the 'carried interest exemption' or the discounted capital gains rate.

Carmen Reinhart and Kenneth Rogoff - the Harvard data-flawed debt scaremongers - are both Pete Peterson-funded economists.

Reinhart was a Senior Fellow at the Peterson Institute for International Economics and is married to economist Vincent Reinhart, who works for the American Enterprise Institute, funded by the Peterson Foundation.

Rogoff is listed on the Advisory Board of the Peterson Institute.

What we have is a bunch of mean and greedy rich people like Pete Peterson who would prefer to see the non-rich suffer.  May 5, 2013

• Jacob Sommer
• Medford, MA

I'm afraid I cannot call the hard-line Republicans "conservative" any more. Conservative would mean that they'd be willing to accept gradual change if they felt it was good for society. They wouldn't seek to make massive and radical changes. They could put country and neighbors above policy, making the policy serve the people and the nation. Right now these Republicans don't accept gradual changes in many things; they attempt to make massive and sweeping changes in line with their ideology; and they put their own political rhetoric above the well-being of their communities and their neighbors.

These people are radicals. Most of them use the pen instead of the sword -- or the gun as the case may be -- but they still actively pursue policies that will hurt, maim and kill other people, far more than their stated concerns that current social safety net policy will somehow hurt people by making them dependent on government.

We should stop calling them conservative and start actively calling them out for the radicals they are. If we don't call them on their radicalism, they will never have a chance of seeing it for what it truly is.  May 5, 2013 

• William O. Beeman
• Minneapolis, MN

Those of us with half a brain (and I may flatter myself) have a great disability. We can read, we can exercise logic and we benefit from historical precedent. We think with logic.

We don't understand that the Tea Party, the American oligarchs and in general the Republican Party don't care about any of that. They are fixated on an ideological position that defies all logic, but that accomplishes their aims of denying any benefit to the middle and lower classes and accruing all financial gain to the upper one percent.

We are wasting our time trying to use logic or reason with these people. They will always have some excuse for ignoring every sensible route out of the current economical disaster, because they really don't want to do anything that benefits anyone but themselves. God forbid that they should try to increase the economic welfare of the unemployed and underemployed.

We will not get out of this mess until we vote these selfish, anti-social creeps out of office. Someone needs to hit their Stepford constituents across the head with a two by four and yell loudly, "Wake up, folks! Your elected representatives are impoverishing you and stealing the future from your children! Ignore the distraction of false and irrelevant social issues and look to the main message. Throw the bums out before they steal everything you hold near and dear."

These politicians are beyond reason, and they have already been bought and sold by Pete Peterson, the Koch Brothers and their ilk.   May 5, 2013

• Paul G Knox
• Hatboro Pa

This wonderful piece is exactly why I was certain the conservatives and their born again fiscal responsibility would never get traction.  After squandering the hard won surplus left by the Clinton administration, I thought surely they wouldn't have the gall or the chutzpah to try to pull off their phony debt concern and be taken seriously. But these guys have no shame, no scruples and only care about winning at all costs.

And they're certainly a persistent lot. They don't even preface their grave deficit concerns with admissions of responsibility on their part. They act as if our debt magically appeared as soon as President Obama was elected.  Seriously, when was the last time you heard conservatives accept any culpability for our "debt crisis"? They lit the house on fire , belatedly called 911, and watched from the crowd like some crazed arsonist as the firemen rushed in. Then they wanted to layoff the firemen before the blaze was under control.

I do hope the tide is turning and the toxic austerity agenda and it's disingenuous supporters are exposed for their hypocrisy as well as their intellectual carelessness and ineptitude. As I often say about conservatives you don't have to call them heartless and cruel, it's enough to point out their complete incompetence at governing and policy making.  May 5, 2013 

• Ron Zaudke
• Prescott, Wi.

The terms "cynicism " and " chutzpah" really do not adequately describe the calculated deceit behind a "conservative movement" whose every economic and fiscal policy for a generation has redounded to the immense benefit of the one percenters who created it, while it ruined the economic well-being of the rest of America.These are frauds and charlatans who have no more credibility to lose- yet most of the media continues to treat them as Very Serious People.

Reaganomics, supply-side economics, the Laffer Curve, the Bush tax cuts, austerity as a "cure" for the Great Recession. It was, and is, all a sham, a series of cheap political tricks, designed to enrich the wealthy, to destroy unions, to eliminate financial and other regulations that once protected the public from predatory, law-of-the jungle capitalism. And to replace democratic government with a thoroughly corporatized plutocracy, a twenty-first century version of feudalism.  May 5, 2013

• mj
• michigan

It would be so nice for someone to write an article about how to follow the money. Let's just be realistic, we haven't had a policy in at least 13 years that didn't have something to do with making Business richer at the expense of the 99%. The reason the Republicans (and democrats) want to get rid of Social Security has nothing to do with it's solvency or anything else. It's because business must pay a portion of it which it does not want to do. It costs business money and if social security is dismantled it won't be very long before things like unemployment insurance are also gone. We are well down the road on these policies even now.

The Republican governors who so blatantly lied and were elected to states like my own are busy dismantling the few assets left and like Mitt Romney selling them off to their cronies so now cities and police forces are privately owned and managed. They won't be leveraged out of office no matter what the will of the people, using every sleazy trick in the book to remain in power.

It's like a fire sale in the country right now. The wealthy are fighting over the bones and becoming rich beyond their wildest dreams and the Fed sits by and ponders. Any protection for the workers is destroyed under the name of fiscal responsibility which is code for More Money for Business. Jobs go for a fraction of what their workers once made and all the while the country slowly decays into rubble.

The public needs to wake up and take back their country.

May 6, 2013 

• Eva Ingle
• Laurel Springs, NC

Excellent point! For at least 40 years the grant strategy of the radical right has been to create deficits so that the New Deal safety nets will be undercut. A great deal of money has been spent by their "think tanks" to promote this underlying strategy. And, it is amazing how the leadership and "thinkers" of the Democratic Party have been clueless as to how to respond. With Citizens United the flow of money to promote this plan has exploded and we have large numbers of citizens who believe it. We will not have this turned around until the Democratic Party reforms itself or, doubtful, an alternative party emerges to articulate, promote and defend the values of a democratic society.

• In reply to Eduardo
• May 6, 2013